Superannuation For Dummies®
Table of Contents
Introduction
About This Book
How to Use This Book
Foolish Assumptions
How This Book Is Organised
Part I: What Is Super, Really?
Part II: Super — Your Ticket to Ride
Part III: Taking Control Is a Piece of Cake
Part IV: Hey, Don’t Forget Your Retirement!
Part V: The Part of Tens
Part VI: Appendixes
Icons Used in This Book
Where to Go from Here
Part I: What Is Super, Really?
Chapter 1: Relax, Super’s Here to Stay
Understanding the RIPper Plan behind Super
Investing for the Long Tomorrow
Introducing the Eight-Step Program to Super Success
Confronting SUPERstitions
‘Super is too complex’
‘Super is taxed too much’
‘My super’s going to disappear in fees’
Opting For a Tax-free Retirement
Chapter 2: Looking into Your Future
Retiring Isn’t That Far Away


Facing Four Facts about the Future

Living longer — ageing in comfort
Straining the Government Age Pension
Staying healthy costs more
Expecting a reasonable lifestyle
Planning for Your Long-Term Lifestyle
Living the Life of Riley in Retirement
Dreaming the fairytale
Grasping the reality
Taking the ostrich option
Getting serious about it
Saving the Super Way
Safe as houses
Investing outside of super
Banking on term deposits
Chapter 3: Spotting a Super Fund in the Wild
Discovering Six Fund Types on Your Super Safari
Recognising Your Super Type from a Distance
Being close to home — your employer’s fund
Chasing safety in numbers — industry fund (not-for-profit)
Shuffling the pack — retail fund (for profit)
Becoming a public sector fund member
Doing-it-yourself — DIY super fund
Taking refuge — Retirement Savings Account (RSA)
Appreciating a Super Fund’s DNA
Putting a super fund under the microscope
Passing the ‘complying fund’ test
Tapping into admin, admin, admin
Introducing super’s other little helpers — fund managers and more



Comparing Accumulation with Defined Benefit
Carrying the risk and earning the reward
Protecting a rare species — defined benefit funds
Chapter 4: Choosing a Super Fund
Do You Have Super Fund Choice?
Changing jobs, choosing a fund
Nothing to choose, for some
Identifying Your Super Choices
Handing over your super to the experts
Delving into DIY super
Trusting a Fund’s PDS
Profiling a Super Fund — Your Super Choice Toolkit
Checking Out the Super Competition
Relying on rating companies
Seeking financial advice
Leaving for Greener Pastures
Protecting your insurance cover
Avoiding higher fees
Losing out on extra employer contributions
Completing the Standard Choice Form
Providing new fund details to your employer
Chapter 5: Nothing Beats Super Advice
Seeking Information Before Advice
Starting with your super fund
Asking your employer


Removing the Con from the Content
Costing your advice
Critiquing commission advice

Choosing a Licensed Adviser
Checking out that adviser
Using a financial planner
Checking if your fund provides advisers
Approaching Super’s White Knights
Wagging the watchdog tail
Liaising with industry types
Did you say independent, and free?
Getting Your Super Beef Sorted Out
Understanding the complaints process
Taking your complaint further
Part II: Super — Your Ticket to Ride
Chapter 6: Getting Super Fit — Your Start-Up Kit
Taking Your Super Physical
Exercising your rights when joining a fund
Filling in fancy forms the right way
Keeping your paperwork up to date
Getting Compulsory Super Training — Employer Contributions
Giving nine every time — SG contributions
Scoring SG four times a year
Identifying additional employer contributions
Keeping an eye on your employer
Signing Up for Your Advanced Super Workout — Voluntary Contributions


Making after-tax contributions
Contributing before-tax dollars
Contributing for your spouse . . . rebate
Splitting contributions with your spouse
Chapter 7: Becoming Friends with Your Super Fund

Getting the Lowdown on Your Fund
Chatting to your payroll officer
Reading the info from your super fund
Checking out your fund’s Web site
Taking advantage of your fund’s helpline
Attending your fund’s seminars
Who’s Looking After Your Super Piggy Bank?
Do you know your trustees by name?
Identifying a quality trustee board
Managing your super money
Understanding Your Member Statement
Reading the headlines
Navigating your way around your statement
Keeping Your Super Safe
Identifying the cops and robbers
Losing your super doesn’t make cents
Finding your ‘lost’ super
Chapter 8: Exploring the World of Super Investing
Understanding the Basic Ingredients of Super Investing
Classifying your assets
Suffering a super identity crisis
Setting up your super future in four steps
Investment Choice — Is Your Fund Offering a Fixed Menu or Open Buffet?


Checking whether your fund serves an open buffet
Researching the best dishes from the investment buffet
Defaulting on your investment choice
Desperately Seeking Super Performance
Investing for the long tomorrow

Deciding on a performance benchmark
Relying on past performance
Seeking glowing reviews on your fund’s performance
Chapter 9: Keeping Watch Over Those Fees
Finding Out the Facts about Fees
High fees reduce your benefit
Combining your super accounts
Protecting small account balances
Appreciating Funds with Lower Fees
Running for profit, or not
Paying wholesale is cheaper
Understanding Your Super Fund’s Fees
Receiving fee information in plain English
Checking out your fees in your member statement
Unlocking the Secrets to Hidden Fees
Calculating Your Super Fees
Chapter 10: Cheaper Insurance and Other Benefits
Protecting Your Lifestyle and Your Life
Putting a value on your life and lifestyle
Counting the cost of living
Choosing Among Three Types of Insurance


Insuring your life
Insuring your body
Insuring your income
Relying on Your Employer’s Choice
Claiming Insurance Benefits
Paying super tax rates
Making an insurance complaint

Visiting Your One-Stop Super Shop
Taking advantage of super home loans
Accessing cheaper financial products
Part III: Taking Control Is a Piece of Cake
Chapter 11: Six Super Contribution Strategies
When Before and After Matters
Choosing before- and after-tax contributions
Before and after the age of 65
After turning 75
Adding After-Tax Contributions
Entering a tax-friendly environment
Bringing forward your limit
Talking tough on limits
Catering for special categories
Beefing Up Before-Tax Contributions
If the cap fits …
Claiming a tax deduction
Reducing CGT While Boosting Super
Taking Advantage of Salary Sacrifice
Getting your arrangement in place


Sacrificing your Superannuation Guarantee
Sacrificing the right salary amount
Weighing up the benefits of your sacrificial offering
Joining the Co-Contribution Club
Checking the membership requirements
Receiving your bonus contribution
Splitting Super with Your Spouse
It takes two …

Splitting super straws
Chapter 12: Taxing Your Super While You’re Working
Entering the Super Tax Maze
Paying Less Tax than Your Marginal Rate
Reducing Income Tax the Super Way
Making non-concessional contributions
Sacrificing your salary
Claiming tax deductions for contributions
Taking It One Tax at a Time
Copping contributions tax
Handing-over-your-earnings taxes
Leaving-your-fund-before-you-turn-60 taxes
Super Survival — Changing Jobs or Taking Breaks
What about redundancy?
Taking employment termination payments
Transferring benefits from overseas
Chapter 13: Setting Up Your DIY Super Fund
Take Your Pick — the ATO or APRA
Considering whether DIY Super Is Right for You


Trying on DIY for size
Taking the Super C Quiz — Your DIY roadworthy
Costing the Running of Your Fund
Kick-starting your fund
Running your fund
Practising DIY Compliance Makes Perfect, Nearly
Monitoring the must-dos
Drafting your fund’s trust deed
Applying the sole purpose test

Drafting your investment strategy
Keeping financial records
Auditing your SMSF
Committing Long-Term to Your SMSF
Chapter 14: DIY Super and Investing
Committing to Your DIY Super Fund — a Life and Investment Decision
Building Your DIY Super Fund Portfolio
Setting the framework — your DIY super fund’s investment strategy
Identifying your goals — your DIY super fund’s investment objectives
Getting into position — your DIY super fund’s asset allocation
Investing Directly versus Managed Funds
Hand-Picking Your DIY Super Fund’s Investments
Being direct on property
Investing in your office or factory
Investing in shares
Taking it easy on exotic investments
Transferring assets into your DIY super fund
Walking the Investment Tightrope
Keeping your investments at ‘arm’s length’


Meeting the sole purpose test — a must
Investing too close to home
Borrowing and lending is a no-no
Investing in Managed Funds
Chapter 15: Breaking Up Is Hard to Do
Can You Split Your Super?
Divorcing Your Super
Introducing your lawyer — a must
Declaring your separation

Carving up income streams
Doing the Super Splits
Discovering your spouse’s super secrets
Valuing your spouse’s super
Splitting more than straws
Excluding De Factos and Same-Sex Couples
Part IV: Hey, Don’t Forget Your Retirement!
Chapter 16: How Much Super Is Enough?
How Much Money Do You Really Need?
Choosing your lifestyle
Comparing a modest with a comfortable lifestyle
What’s your savings target, then?
Living On More than $36,000 a Year
Choosing your response
Wanting more . . .
Now, for the Good News!
Drawing a final line in the sand


Calculating your final super balance
Filling a Gap in Your Super Thinking
Boosting your super contributions
Delaying retirement
Lowering your expectations
Chapter 17: Taking a Lump Sum or Income Stream
Start Planning, Now!
Preparing for R day
Navigating the retirement road
Taking a Lump Sum Payment
Clearing your debts early

Paying the lump sum tax, if any
A Pension for Your Thoughts
Account-based pension or annuity — flexible income stream
Lifetime pension or annuity — guaranteed
Term-certain pension or annuity — guaranteed
Transition-to-retirement pension or annuity — flexible income
Chapter 18: Retiring Early (Before 60)?
Choosing the Right Time to Retire
Retiring too early
Working after retiring
Entering the Tax-Friendly World of Retirement
Tax and other complexities
Retiring doesn’t have to be taxing
Leaving a Lump in Your Throat
Mastering the Retirement Tax Tango


Deferring your lump sum tax
Paying zero tax on pension earnings
Making a mockery of marginal tax
Turning taxable into tax-free
Reclaiming your 15 per cent of tax flesh
Finding the Right Gate to the Super Orchard
Waiting for your super to bear fruit
Understanding preserved benefits
Discovering your non-preserved benefits
Chapter 19: Tax-Free Super for Over-60s
Turning 60 Isn’t Enough
Taking a Tax-Free Birthday Present
Understanding the DNA of a super benefit

Hitting public servants with tax
Don’t Forget about Tax-Free Earnings
Dealing with Death Tax
Making a dash to the bank
Boosting your tax-free component
Raising the Roof on Tax-Free Thresholds
Paying less tax because you SATO
Claiming the LITO
. . . And There’s More — Franking Credits
Chapter 20: Your Super and the Age Pension
Getting the Best of Both Worlds
Claiming the Age Pension
Reaching Age Pension age
Receiving an indexed pension for life
Enjoying retirement’s fringe benefits


Passing Your Age Pension Exams
Taking the assets test
Taking the income test
Taking Advantage of Super Income Streams
Earning a Tax-Free Pension Bonus
Chapter 21: Death Isn’t the End of Your Super
It Ain’t Over ’til the Fat Lady Sings — or Your Death Benefit Is Paid
Where does your super go, when you go?
Covering your debts beyond death
Complaining about a death benefit
Leaving Your Super to the Right People
Depending on you — your dependants
Having the last word — binding nominations

Where there’s a will there’s a way
Getting a Free Pass from the Tax Man
Taking a short course in tax
Receiving a lump sum death benefit
Receiving a superannuation income stream death benefit
Who Cares about Adam and Steve, and Super?
Part V: The Part of Tens
Chapter 22: Ten Snakes of Super — Room for Improvement
Suffering ‘Super’s Too Hard’ Syndrome
Creating Taxes for Every Occasion
Uncovering the Mystery of Commissions
Getting Your Money Before the Age of 55? — Forget It
Ignoring the ‘Aussie Battlers’
Leaving Women behind in Super Stakes
Continuing Saga for Same-Sex Couples


Double Dipping — Taking Two Bites of the Cherry
Outliving Your Super Investment
Copping a Death Tax
Chapter 23: Ten Ladders of Super — Good Things about Super
Telling a RIPper Tale
Saving Super in Your Sleep
Paying No Taxes, or Lower Taxes
Compounding Your Super Interest
Super Freebies from the Government
Sacrificing Salary for Super
Getting More for Your Super Buck
Diving into DIY Super — Head First
Barking Watchdogs and Roving Regulators

Leaving Tax-Free Benefits for Your Family
Part VI: Appendixes
Appendix A: Indexed Thresholds, Life Expectancy and Sample Member
Statement
Appendix B: Important Organisations
Government-funded consumer organisations
Privately funded consumer organisations
Australian Prudential Regulation Authority (APRA)
Australian Securities and Investments Commission (ASIC)
Australian Taxation Office (ATO)
Centrelink
Department of Families, Community Services and Indigenous Affairs
(FaCSIA)
Superannuation Complaints Tribunal (SCT)
The Association of Superannuation Funds of Australia (ASFA)
Australian Institute of Superannuation Trustees (AIST)
CPA Australia and Institute of Chartered Accountants of Australia (ICAA)
Financial Planning Association (FPA)
Investment and Financial Services Association Limited (IFSA)
Self-managed Super Fund Professionals’ Association of Australia (SPAA)


Appendix C: Glossary


Superannuation For Dummies
by Trish Power

Wiley Publishing Australia Pty Ltd



Superannuation For Dummies®
2nd edition published 2007 by Wiley Publishing Australia Pty Ltd 42 McDougall Street Milton,
Qld 4064 www.dummies.com
Copyright © 2007 Wiley Publishing Australia Pty Ltd
The moral rights of the author have been asserted.
National Library of Australia Cataloguing-in-Publication data
Power, Trish.
Superannuation for dummies. 2nd ed.
Includes index. ISBN 978 0 731 40715 6 (pbk).
Pensions — Australia. 2. Retirement income — Australia. 3. Finance, Personal ​— Australia. I.
Title. (Series: For dummies).
331.2520994
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About the Author
Trish Power is an author and journalist who lived a former life as a superannuation tech-head, and
toyed with the idea of becoming a nomad.
She is the author of Superannuation For Dummies, Superannuation: Choosing a Fund For
Dummies and Dear Trish: Super — Tax-free Superannuation Dollars For You. Trish is the coauthor of You Don’t Have to be Rich to Become Wealthy: The Baby Boomers Investment Bible
and a contributor to Making Money: Alan Kohler’s Guide for the Independent Investor.
She is Superannuation Editor for investment newsletter Eureka Report, where she writes a weekly
column called Dear Trish covering all aspects of superannuation, including investing. She also

writes the four-page DIY Super section for investment publication Investing Times. Trish is a
contributor to other financial publications including The Age, Superfunds magazine and
INTHEBLACK.
Trish describes much of her financial writing as educative journalism. She is interviewed
regularly on radio and presents at educational seminars, typically speaking about investing,
superannuation, property, and women and investing.
Trish has worked on member communication campaigns for some of the largest superannuation
funds in Australia, and spent several years educating and advising the community and industry on
super while employed with the industry regulator. She also held the role of Technical Manager for
CPA Australia’s Superannuation Centre of Excellence before moving to New Zealand and writing
a novel.
Trish has both a law degree and an economics/commerce degree from the University of
Melbourne, and holds a professional writing and editing qualification from RMIT University.
She has travelled extensively throughout Asia, the Middle East, Africa and Europe. Her all-time
favourite destinations are Venice, Iceland, Central Australia, Botswana and Petra in Jordan.
Trish lives in Elwood, Victoria, with her partner.


Dedication
This book is dedicated to all of those in the community who work tirelessly to educate and
empower Australians about financial opportunity — giving Aussies access to plain-English
information that allows anyone to make their lives more secure in retirement and in day-to-day
life.
This second edition is also dedicated to my late aunt, Mary Power, who was a great supporter of
my publications and who passed away during the writing of this edition.

A Special Thanks to CPA Australia
A special thanks to CPA Australia, in particular Michael Davison, who kindly conducted the
technical review of the final manuscript. Michael has lived and breathed the superannuation
changes — he has a marvellous grasp of the big picture super issues and also how individual fund

members are affected. Thank you Michael for your counsel over the past few years.


Author’s Acknowledgments
A lot of wonderful people helped make the second edition of Superannuation For Dummies a
reality. My editor, Robi van Nooten, again generously gave of her experience and intellect and
worked with me to create the best book possible.
Thanks and kudos to Lesley Beaumont, Charlotte Duff and the rest of the Wiley team for
appreciating the importance of updating Superannuation For Dummies. I also want to
acknowledge Michaela Anderson, Bradley Pragnell and the ASFA team for their involvement in
reviewing the previous edition of this book.
A big thank you to Alan Kohler for writing such a positive foreword and for supporting this book.
Thanks Alan.
My friend, Kate McKinna, who, as with the first edition, read many of the chapters and provided
excellent feedback. Thank you Kate for taking the time.
And many thanks to Angela Longo from Greenfields Financial Services Lawyers for reviewing the
death and divorce chapters, despite her hectic workload. And to Kevin Kelly, thanks for your
support.
Again, thanks to my superannuation specialist brother Peter Power and his 3 Dimensions business
partner Paul Lam for acting as a sounding board for my super scenarios, and for assisting me when
my computer misbehaved.
When writing a book, sometimes the deadlines require understanding from the people you work
with. Thanks to the team at Investing Times, in particular Ian Murdoch, Jamie Nemtsas and Susan
Cameron. Also the team at Eureka Report — Alan Kohler, James Kirby, Catherine Cardinet,
Jamie Harrison, James Frost (Frosty) and Rowan Wilde. And you, too, Jodie.
And thanks again to Janine Mace, editor of Superfunds magazine for originally recommending me
for this book and her ongoing support, and to Jackie Blondell, editor of INTHEBLACK, for her
good humour about my unavailability due to my ongoing book commitments.
A heartfelt thanks to my partner Siobhan and my sister Julianne for our long beachside walks and
café catch-ups, and tolerance for my incessant ‘working on the book’ in bayside cafes, while they

chatted together. Thanks to my father for cutting out that job ad in the superannuation industry 20odd years ago, and thanks Mum for keeping me chuckling throughout the writing of this book, and
every other book that I have written.
And to my friend, Sharon Shelley, for encouraging me many years ago to move from tech-head to
writer.


Publisher’s Acknowledgments
We’re proud of this book; please send us your comments through our Dummies online registration
form located at www.dummies.com/register/.
Some of the people who helped bring this book to market include the following:
Acquisitions, Editorial and Media Development
Project Editor: Robi van Nooten, On-Track Editorial Services
Acquisitions Editor: Charlotte Duff
Technical Reviewer: Michael Davison, CPA Australia
Editorial Manager: Gabrielle Packman
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Indexer: Karen Gillen


Foreword
The then Treasurer Paul Keating and the Labor Party did a great thing for Australia when they set
up Australia’s unique superannuation system in the late 1980s. The result of that initiative is a
ballooning in national savings and greater financial independence for most people living here.
These benefits are helped by the fact that both the share and the property markets have gone up for
16 years — virtually from the moment everyone was required to put money into super and,
therefore, to invest in shares and property.
Currently, a trillion dollars ($1,000,000,000,000) is sitting in super in Australia, and, as a direct
result of Superannuation Guarantee (compulsory contributions made by employers on behalf of
their employees to superannuation), the Australian sharemarket increased from 1.5 per cent of the
world’s investment pool to 2.5 per cent. ‘Little’ Australia, with its 20 million people, has the
fourth biggest retirement savings pool in the world, and is truly punching above its weight in the
global financial system.
But Paul Keating left something out. He forgot to make the system simple. Previously, anyone who
found the whole concept of superannuation too hard just didn’t bother with it. But as soon as the
1990s began, Superannuation Guarantee was mandatory; every employee was in it whether they
liked it or not, and more especially whether they understood it or not.
The complexity of superannuation means the entire working population is required to employ a
super fund and, therefore, to put themselves into the hands of an industry that is, like many
industries, a little mysterious.
Many super funds such as the industry funds (which were set up by Paul Keating and the ACTU’s
Bill Kelty at the same time as Superannuation Guarantee) are ‘not for profit’. These types of funds
can make the choice of funds in the super system more complex. As well, what to do with the
money when you retire is just as perplexing an issue. For example, does anyone understand the

term account-based income stream?
The good news for us all is that a few people dedicate their professional lives to helping people
understanding super — so you can take more control and don’t have to leave your decision making
to the mercy of sometimes unscrupulous financial advisers. One independent expert is Trish
Power, superannuation editor of investment newsletter Eureka Report and one of the nation’s
foremost authors on the complexities of our unique system of saving for retirement. In
Superannuation For Dummies, 2nd edition, Trish explains complex concepts in plain English,
which makes the topic of superannuation fun and rewarding to read about.
The For Dummies presentation is a great platform for explaining super. The Dummies Way is easy
for everyone to use, whether you start from a base of some knowledge or not. If you know a bit
about the subject, you can skip the bits that are too basic and go straight to the real value that an
expert like Trish provides. And if you’re new to taking advantage of using superannuation as a


personal financial planning tool, the basics are there too.
Australia’s superannuation system is evolving all the time. In 2007, a set of new rules were
introduced to make super simpler and a more worthwhile investment. These changes certainly
achieved the latter aim: You only have to look at the huge increase in super balances during June
2007 — including a lot of borrowed money — as people moved to take advantage of the
beneficial tax rules before 1 July 2007 when they came into force.
But like all new sets of regulation, the changes probably add to the complexity of the system. They
certainly make understanding what’s going on more important, which is where reading this book
comes in so that you don’t miss out on some of the tremendous investment and retirement lifestyle
advantages available from superannuation.
Alan Kohler Publisher Eureka Report www.eurekareport.com.au